In simpler times, manufacturers were content to be seamlessly connected with just the parties a link or two away in the supply chain—typically the warehouse and the retailer. But soon that will no longer be enough. As companies begin to compete supply chain to supply chain, the barriers will be removed; everyone—no matter how far up or down the chain—will be expected to be ready to respond to customers' demands. The instant a package of diapers is scanned at, say, a Target or Wal-Mart store, data on the purchase will reverberate through the chain, notifying the buyers, the warehouse, the manufacturer and suppliers all the way back to the plants that make the Triple Leak Shields. Each one will need to be poised and ready to react. It's a future that requires new skills and a new focus. Kimberly-Clark Corp. is at the forefront of this new way of competing. In fact, this is where it's staking its future.
That's why we're focusing our activities on creating capabilities—products, processes and tools— that will ensure leadership for both ourselves and our supply chain partners. Kimberly-Clark defines a successful supply chain as one that leverages the integration between key trading partners to create processes and capabilities that enable us to be first to market with our products at the lowest total delivered cost.
Together we make decisions on minimizing total supply chain costs. In this collaborative model, world-class supply is recognized as a key process for the organization.
We believe that such leadership has to start at the top. At Kimberly-Clark, the CEO, CFO and CIO all understand the enablers of and the obstacles to an efficient supply chain. They also recognize that the supply chain is an integral part of the marketing mix. In an environment characterized by short product life cycles and a dynamic competitive landscape, business leaders are increasingly relying on the supply chain to deliver results. For instance, our diapers undergo two major product improvements per year.Managing these dynamic changes requires a supply chain that is synchronized from source to consumer.
The link between corporate and logistics strategy is iterative. First, the corporate strategy has to be set, with an understanding of what is physically possible in the supply chain. Second, a logistics or supply chain strategy has to be developed that will enable and support the corporate strategy. Changes in one will affect the other. Failure to align the strategies will lead to chaos.
Our goal in the Consumer Logistics groups is to support the top- and bottom-line growth objectives for both Kimberly-Clark and our customers. To do so, we must drive changes in our business processes, systems and organizational structure to take the performance of Kimberly-Clark's supply chain to "best of class" in our industry. This requires us to make decisions as a supply chain and work in concert with our trading partners.
We are addressing this challenge in a variety of ways. Currently we have eight elements that support this strategy. A brief description of the following three elements illustrates our focus.
- Process mapping. Process mapping provides insight into total supply chain costs. Kimberly-Clark has also deployed customer-focused resources to gain a more in-depth understanding of its customers' business strategies and cost drivers by using this technique. Through these relationships we also gained trust, which is a huge benefit when you're trying to drive change in the supply chain.
The first step is to map our "as is" processes and see how they align with our overall corporate and supply chain strategies. Through this we identify disconnects in the current process. The team then develops the "should" process to eliminate disconnects and identify opportunities to achieve a "step change" in performance. We used this process to address an accounts payable issue with one of our key vendors. As a result of mapping the process and correcting disconnects, invoice backlogs are down by 35 percent.
It's worth noting that not all processes are the same. Each process has to take into account the customer's individual needs. And the level of analysis of each process can vary. For instance, macro level process maps for two customers may look very similar. However, as we get closer to the details of exactly how we are going to integrate our processes, we often find significant differences between customers. - Activity-based costing. Using activitybased costing (ABC) and benchmarking (internal and external) for our customer replenishment process was key in identifying opportunities to stamp out inefficient practices. We developed our initial costing model over seven years ago and continue to refine it. To date we have saved over $40 million through opportunities identified using information from our ABC model. Our next step is to partner with a customer to develop an integrated ABC/ABM (activity-based management) model to drive results.
In many cases, it's the simple things that drive up costs in a supply chain. By using ABC information, conducting an economic order quantity analysis and sharing best practices, we identified more than $800,000 of total supply chain cost savings with one of our key customers. The two teams recommended some changes in economic order multiples and the elimination of pallets along with changes in receiving practices and equipment. On our side we reduced loading labor and the cost of pallets. The customer, which backhauled our product to its DCs, gained larger pick-up allowances (based on cubes per truck), cut transport costs and reduced order processing costs. It is these types of wins that help us cut total logistics costs and deliver the product to the shelf more efficiently.
While we certainly want to minimize our costs, we also have to realize that at times it's more efficient for us to bear that burden. As an example, some of our customers asked that we establish a direct store delivery program to support a promotional event. It cost us more to do it but was more efficient than sending the product through their systems. As in any partnership, sometimes you have to invest for the long term. - Promotional event collaboration. As a contributing member of the committee that developed the collaborative planning, forecasting and replenishment (CPFR) process, we have long recognized the importance of collaboration in aligning and synchronizing demand signals. One of our key areas of focus is promotional event collaboration. Promotional events often make or break supply chain performance. The volume lift coupled with the collapsed time frame make accurate forecasting and a detailed replenishment strategy crucial to success.
Agreeing to price points, volume lift assumptions and replenishment plans sounds simple, but often trading partners remain out of synch. Our CPFR team developed processes and tools to improve event planning. By using this process, we improved event forecasting accuracy and post-ad in-stock levels by 10 percent for several of our largest customers. This means products on the shelf when needed, which leads to better sales.
As for the future, Kimberly-Clark foresees a continued focus on challenging the way we manage our supply chain to drive down costs while improving performance. Increased responsiveness and better information will fuel this effort. We're driving process development and customer partnerships to achieve improvement in these areas.
